Nine chief plays down float delays

David Gyngell . . . ‘The television ad market is growing, the Nine group is generating good results.’
Photo: Peter Braig

by
Neil Shoebridge

Nine Entertainment Co chief executive
David Gyngell
has confirmed that its owner, private equity firm CVC Asia Pacific, has pushed back the $5 billion Nine float as executives work to lift earnings in the company’s magazine division.

Mr Gyngell told The Australian Financial Review in an exclusive interview that CVC – which bought the media empire from James Packer – had been buoyed by the pricing of recent deals in the media sector, including Southern Cross Media’s $740 million bid for radio company Austereo Group last week.

CVC would decide about the timing of an initial public offering in the next few months.

“But there is no hard and fast timing for an IPO," Mr Gyngell said. “It’s not time-critical. CVC doesn’t have to refinance Nine’s debt until [February] 2013, so there is no rush.

“The television ad market is growing, the Nine group is generating good results and there is no danger of us breaching our [bank] covenants."

Nevertheless sources close to CVC said its European investors were pushing for it to take advantage of the recovery in Australian media advertising markets and float Nine this year. “CVC’s backers want to cut their losses," said one source.

“They know they aren’t going to make money from the IPO, but they want to get out when ad markets are high and the main business in Nine – its TV network – is performing well."

It is understood the float has been deferred until June or July at the earliest. It was originally mooted for the March quarter this year.

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In January the private equity owners of Hoyts postponed its float or trade sale citing the weak state of the cinema industry.

CVC bought the then PBL Media during 2006 and 2007, spending $1.86 billion and loading it with $4.1 billion of debt.

The source said that CVC wanted more surety around the ACP magazine division’s numbers and a better read on how that sector was performing in terms of copy sales and ad revenue before it goes to market.

CVC executives were understood to be targeting a 10 times earnings multiple for the Nine IPO, which would value it at about $5.3 billion.

Ten Network traded around 10 times in recent years, although it slipped to about nine times last year.

Southern Cross’s Austereo bid was pitched at a multiple of 10.7 times the radio group’s 2010 earnings while Hearst Corporation’s purchase of the magazine division of French company Lagardere for €651 million was at 13.1 times earnings.

“Those multiples are encouraging," Mr Gyngell said.

CVC was expected to retain 20 to 25 per cent of the company (the private equity firm owns 99.93 per cent of Nine, with Mr Packer’s Consolidated Media Holdings owning 0.07 per cent).

The float would include ACP and Nine’s 49.1 per cent stake in Carsales.com – interests some sources claimed it would sell or exclude from the IPO – plus the east-coast Nine TV stations, regional TV network NBN, ticketing agency Ticketek, the management rights to Sydney’s Acer Arena, 50 per cent of ninemsn, 33.3 per cent of Sky News and 50 per cent of the daily deals website Cudo.

CVC and Nine executives had already completed some of the preparations for an IPO, including promoting Mr Gyngell from head of the TV division to the media group’s chief executive in early November after Ian Law resigned. They relaunched PBL Media as Nine Entertainment Co a month later.

In November local internet pioneer Daniel Petre, who ran the Packer family’s internet companies in the 1990s, agreed to join the Nine board. CVC is understood to have lined up other new directors.

In December Mr Gyngell and CVC’s local managing partner, Adrian MacKenzie, briefed about 40 staff from the three firms hired to advise on the float – UBS, Goldman Sachs and Credit Suisse. The pair also met six local institutional investors before Christmas. Once CVC settles on a date for the IPO they will travel to the United States to pitch Nine to potential investors there.

Industry sources dismissed speculation CVC would look for a cornerstone investor. “It’s hard to think of anyone who would pay about $1 billion for a 20 per cent," said one investment banker. “But you never know; media companies have been known to attract unexpected investors, like Gina Rinehart." (Ms Rinehart has bought 10 per cent of Ten Network and 4 per cent of Fairfax Media, publisher of the AFR.)

The TV division has been Nine’s star performer over the past 18 months, thanks to its rising ratings, the strong growth of the TV advertising market, and the success of digital channels Go and Gem.

Earnings before interest, tax, depreciation and amortisation from the TV division were expected to surge from $150 million in 2009-10 to $300 million in 2010-11. Nine group’s total earnings were tipped to climb from $405.9 million to about $530 million.

Commonwealth Bank analyst Alice Bennett said an 8 to 8.5 times multiple was appropriate for Nine. Fragmentation of free-to-air TV audiences over the next few years as internet TV takes hold meant “future multiples should be below historic, inflated ones".

Ms Bennett predicted ACP’s earnings before interest, taxes, depreciation and amortisation would drop from $141.7 million in 2009-10 to $108.2 million in 2010-11, largely thanks to a 3 per cent increase in costs. Sources close to ACP rejected her numbers, saying the magazine division would generate about $120 million this year.

ACP has been through several rounds of cost cutting over the past three years, including a 25 per cent drop in its staff numbers.

But ACP managing director
Phil Scott
is understood to be under pressure to chase ad revenue growth more aggressively and make further cuts, including closing unprofitable or marginal magazines.

Mr Gyngell said sales of ACP’s magazines across the 2010-11 summer had been “OK, but the market is still tough". The magazine ad market grew about 7 per cent last year and he said it was growing again this year.